El4-Corn Talk, Lancaster Farming, Saturday, October 19, 2002
New Farm Bill And Observations
On Corn Futures Prices
Editor’s Note: From the
Sept.-Oct. 2002 PGP Maga
zine.
Virgil Robinson
Pioneer Market Analyst
The 2002 Farm Bill is
playing to mixed reviews.
Most notably, the Europe
an Union, Canada, Brazil,
and Argentina argue this bill
will further distort the mar
ket signals influencing U.S.
production decision. A few
competitors have indicated
they will “challenge” the bill
at the Geneva-based World
Trade Organization.
Competitors in the global
com and soybean export
market fear “a heightened
subsidy war” is taking
shape. Sound arguments
can be made both to support
and dispute the bill.
How this backlash
or potential retalia
tion from various
U.S. competitors
plays out is unclear.
Signals are mixed
However, one
piece of the bill we
clearly can isolate
and discuss: the
change in relative
loan rates between
corn and soybeans.
Under the 1996
Farm Bill, the soy
bean-to-corn loan
rate was 2.8-to-l.
With the new bill, it
contracts to 2.5-to-l.
As of July 10, it
appeared this ad
justment likely
would encourage
farmers to plant
more corn next
spring. U.S. 2003
com acreage is an
ticipated to increase
to about 80 million
acres compared to
this year’s 79 million
acres. Soybean acre
age is expected to
decline modestly
from this season’s 73
million.
Given this “as
sumption,” to what
level could Chicago
Board of Trade
(CBOT) December
2003 com futures
trade? The U.S. is
the leader in globe
com production, but
we have competi
tion. Therefore, in
an effort to answer
the above question,
let’s examine:
• The last few
years of the world
com ending stocks
to-use ratios.
' • The most cur
rent projection for
2002-2003.
• The subsequent
behavior of CBOT
futures.
Rates Decrease
In each of the
crop years beginning
with 1999-2000 and
ending with the
2002-2003 forecast,
the ending stocks-to
use ratios have de
creased. Corn sup-
(D®im iffl mm
plies have diminished and/
or tightened.
A pattern develops when
we analyze the ending
stocks-to-use ratio for these
three crop years with respect
of the following year’s new
crop (December) futures
contract. In each of these
years, the new crop futures
contract has experienced
about a $0.30 move from
previous summer low to
contract high.
Therefore if the December
’O3 CBOT futures contract
establishes a summer (June
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Let’s say you grow about 15
acres of corn. One bag or unit
will plant about 3 acres. You’ll
need about 5 bags. Let’s say
you buy $lOO/bag corn. That
adds up to about $5OO. Use
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tember 1
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VARIETIES WljL.Jg
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PENNSYLVANIA CORN GROWERS ASSOC., INC.
through August) 2002 low of
$2.20, $2.25 or $2.30, there’s
an argument based on
years of a similar structure
that prior to its expiration
it will trade at or near $2.50,
$2.55 and $2.60, respec
tively.
If this pattern holds,
grains sellers could see a
marketing opportunity
that’s at least 30 cents better
than the summer low before
contract expiration. This
difference could help grow
ers achieve target price ob
jectives.
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ERECTA LUPRE
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Resit >< apply
Let’s say you grow about 75
acre% of corn. One bag or unit
wilt plant about 3 acres. You’ll
need about 25 bags* Let’s say
you buy $ 10Qtbag corn. That
add&tiplo abobrs2soo. Use
OPTION 3. Buy between Sep
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